SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
OR
/ / Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------------------------
COMMISSION FILE NUMBER 0-24708
------------------------------
AMCON DISTRIBUTING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation)
10228 "L" Street
Omaha, NE 68127
(Address of principal executive offices)
(Zip Code)
47-0702918
(I.R.S. Employer Identification No.)
(402) 331-3727
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
The Registrant had 2,737,337 shares of its $.01 par value common stock
outstanding as of April 30, 2000.
Form 10-Q
2nd Quarter
INDEX
-------
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Balance sheets at March 31, 2000
and at September 30, 1999 3
Statements of income for the three and six-month
periods ended March 31, 2000 and March 31, 1999 4
Statements of cash flows for the six-month periods
ended March 31, 2000 and March 31, 1999 5
Notes to unaudited financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
AMCON Distributing Company
Consolidated Balance Sheets
March 31, 2000 and September 30, 1999
- ---------------------------------------------------------------------------------------
(Unaudited)
March 31, September 30,
2000 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,538,861 $ 1,728,042
Accounts receivable, less allowance for
doubtful accounts of $878,506 and $676,801 17,674,659 18,345,816
Inventories 23,609,615 23,979,639
Deferred income taxes 761,281 717,022
Other 780,528 1,000,189
------------ ------------
Total current assets 44,364,944 45,770,708
Fixed assets, net 7,086,087 7,502,927
Investments 495,687 550,691
Other assets 15,156,580 14,764,890
------------ ------------
$ 67,103,298 $ 68,589,216
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,860,442 $ 11,953,546
Accrued expenses 2,579,176 3,173,231
Accrued wages, salaries and bonuses 410,747 640,933
Income taxes payable 482,178 283,111
Dividends payable 82,120 51,297
Current portion of long-term debt 8,827,828 10,133,393
Current portion of subordinated debt 800,000 800,000
------------ ------------
Total current liabilities 26,042,491 27,035,511
------------ ------------
Deferred income taxes 717,919 678,455
Other liabilities 523,279 423,574
Long-term debt, less current portion 15,296,135 17,995,432
Subordinated debt, less current portion 9,200,000 9,200,000
Commitments
Shareholders' equity (as restated):
Preferred stock, $.01 par value, 1,000,000
shares authorized, none outstanding - -
Common stock, $.01 par value, 15,000,000
shares authorized, 2,737,337 and 2,727,656
issued, respectively 27,373 27,276
Additional paid-in capital 4,121,667 4,101,629
Unrealized gain on investments
available-for-sale, net of $133,434
and $149,664 tax 219,973 234,299
Retained earnings 10,954,461 8,893,400
------------ ------------
15,323,474 13,256,604
Less treasury stock, 0 and 102 shares at cost ( -) (360)
------------ ------------
Total shareholders' equity 15,323,474 13,256,244
------------ ------------
$ 67,103,298 $ 68,589,216
============ ============
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
AMCON Distributing Company
Consolidated Statements of Income
for the three and six-months ended March 31, 2000 and 1999
(Unaudited)
- ------------------------------------------------------------------------------------
For the three months For the six months
ended March 31 ended March 31
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Sales (including excise taxes
of $14.3 million and $12.6 million,
and $28.8 million and $25.9
million, respectively) $111,736,115 $90,039,560 $223,779,875 $172,348,320
Cost of sales 97,021,255 80,686,423 195,106,275 152,349,237
------------ ----------- ------------ ------------
Gross profit 14,714,860 9,353,137 28,673,600 19,999,083
Selling, general and
administrative expenses 11,431,108 7,355,628 22,399,094 14,898,029
Depreciation and amortization 679,355 305,253 1,309,179 600,721
------------ ----------- ------------ ------------
12,110,463 7,660,881 23,708,273 15,498,750
------------ ----------- ------------ ------------
Income from operations 2,604,397 1,692,256 4,965,327 4,500,333
Other expense (income):
Interest expense 819,069 379,072 1,563,671 825,240
Other expense (income), net (108,241) (111,995) (116,353) (145,260)
------------ ----------- ------------ ------------
710,828 267,077 1,447,318 679,980
------------ ----------- ------------ ------------
Income before income taxes 1,893,569 1,425,179 3,518,009 3,820,353
Income tax expense 687,815 563,733 1,300,012 1,515,507
------------ ----------- ------------ ------------
Net income $ 1,205,754 $ 861,446 $ 2,217,997 $ 2,304,846
============ =========== ============ ============
Earnings share
Basic $ 0.44 $ 0.32 $ 0.81 $ 0.84
============ =========== ============ ============
Diluted $ 0.42 $ 0.30 $ 0.77 $ 0.82
============ =========== ============ ============
Weighted average shares
outstanding:
Basic 2,736,481 2,727,662 2,732,264 2,727,662
============ =========== ============ ============
Diluted 2,864,775 2,828,387 2,864,526 2,826,769
============ =========== ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
AMCON Distributing Company
Consolidated Statements of Cash Flows
for the six months ended March 31, 2000 and 1999
(Unaudited)
- ------------------------------------------------------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,217,997 $ 2,304,846
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,309,179 665,959
Gain on sales of fixed assets and securities (48,466) (39,022)
Provision for losses on doubtful accounts 269,705 204,591
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable 991,312 (968,100)
Inventories 370,024 (1,037,515)
Other current assets (331,465) 14,082
Other assets (784,686) (12,757)
Accounts payable 1,170,958 2,129,558
Accrued expenses and accrued wages,
salaries, and bonuses (1,253,544) 139,621
Income taxes payable and deferred taxes 212,860 (48,685)
----------- -----------
Net cash provided by operating activities 4,123,874 3,352,578
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (592,337) (378,617)
Acquisitions, net of cash acquired - (1,258,836)
Proceeds from sales of fixed assets 124,863 38,600
Proceeds from sale of available for sale securities 38,690 -
----------- -----------
Net cash used in investing activities (428,784) (1,598,853)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 1,080,000
Net (payments) proceeds on bank credit agreement (3,330,522) (1,939,819)
Payments on long-term debt (448,129) (767,501)
Dividends paid (125,921) (99,200)
Proceeds from exercise of stock options 20,301 -
----------- -----------
Net cash used in financing activities (3,884,271) (1,726,520)
----------- -----------
Net increase (decrease)in cash (189,181) 27,205
Cash, beginning of period 1,728,042 38,369
----------- -----------
Cash, end of period $ 1,538,861 $ 65,574
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
AMCON Distributing Company
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
- ------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements of AMCON Distributing Company
and subsidiaries ("AMCON" or the "Company") have been prepared on the same
basis as the audited financial statements for the year ended September 30,
1999, and, in the opinion of management, contain all adjustments necessary to
fairly present the financial information included therein, such adjustments
consist of normal recurring items. It is suggested that these financial
statements be read in conjunction with the audited financial statements and
notes thereto, for the fiscal year ended September 30, 1999, which are
included in the Company's Annual Report to Stockholders filed with Form 10-K.
Results for the interim period are not necessarily indicative of results to be
expected for the entire year.
AMCON's fiscal second quarters ended on March 24, 2000 and March 26,1999,
respectively. For convenience, the fiscal quarters have been indicated as
March 31 and each of AMCON's fiscal first and second quarters were comprised
of 13 weeks.
2. INVENTORIES:
Inventories consist of finished products purchased in bulk quantities by the
wholesale distribution business to be redistributed to the Company's retail
customers and finished products purchased by the retail health food stores to
be sold to consumer. Effective in fiscal 1999, the Company changed the method
of accounting for inventory from the first-in, first-out ("FIFO") method to
the last-in, first-out ("LIFO") method. LIFO inventories at March 31, 2000
were approximately $2.1 million less than the amount of such inventories
valued on a FIFO basis.
3. STOCK DIVIDEND:
In December 1999, the Board of Directors of the Company declared a special 10%
stock dividend paid on February 8, 2000 to shareholders of record on January
25, 2000. The effect of the special 10% stock dividend has been reflected
retroactively in the earnings per share calculation for the quarter ended
March 31, 1999 and the capital accounts at September 30, 1999.
4. EARNINGS PER SHARE:
Basic earnings per share is calculated by dividing net income by the weighted
average common shares outstanding for each period. Diluted earnings per share
is calculated by dividing net income by the sum of the weighted average common
shares outstanding and the weighted average dilutive options, using the
treasury stock method.
<TABLE>
<CAPTION>
For the three-month period ended March, 31,
------------------------------------------------
2000 1999
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1. Weighted average common
shares outstanding 2,736,481 2,736,481 2,727,759 2,727,759
2. Weighted average treasury
shares outstanding - - (97) (97)
3. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 128,294 - 100,725
----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 2,736,481 2,864,775 2,727,662 2,828,387
=========== =========== =========== ===========
5. Net income $ 1,205,754 $ 1,205,754 $ 861,446 $ 861,446
=========== =========== =========== ===========
6. Earnings per share $ 0.44 $ 0.42 $ 0.32 $ 0.30
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the six-month period ended March, 31,
------------------------------------------------
2000 1999
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1. Weighted average common
shares outstanding 2,732,310 2,732,310 2,727,759 2,727,759
2. Weighted average treasury
shares outstanding (46) (46) (97) (97)
3. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock - 132,262 - 99,107
----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 2,732,264 2,864,526 2,727,662 2,826,769
=========== =========== =========== ===========
5. Net income $ 2,217,997 $ 2,217,997 $ 2,304,846 $ 2,304,846
=========== =========== =========== ===========
6. Earnings per share $ 0.81 $ 0.77 $ 0.84 $ 0.82
=========== =========== =========== ===========
</TABLE>
In December 1999 the Board of Directors increased the quarterly cash dividend
from $0.02 to $0.03 per share and declared a special 10% stock dividend.
5. COMPREHENSIVE INCOME:
The following is a reconciliation of net income per the accompanying
consolidated statements of income to comprehensive income for the periods
indicated:
<TABLE>
<CAPTION>
For the three months For the six months
ended March 31 ended March 31
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 1,205,754 $ 861,446 $ 2,217,997 $ 2,304,846
Other comprehensive income:
Unrealized holding gain (losses)
from investments arising during
the period, net of income taxes
of ($22,229), ($32,370), ($6,666)
and $20,232, respectively (21,083) (50,631) 4,854 31,643
----------- ----------- ----------- -----------
Comprehensive income $ 1,184,671 $ 810,815 $ 2,222,851 $ 2,336,489
=========== =========== =========== ===========
</TABLE>
6. BUSINESS SEGMENTS:
AMCON operates within two business segments; the wholesale distribution of
consumer products by AMCON Distributing Company and Food For Health Co., Inc.
and the retail sale of health and natural food products by Chamberlin's
Natural Food Products, Inc. (d/b/a Chamberlin's Market and Cafe) and Health
Food Associates, Inc. (d/b/a Akin's Natural Foods Market). The business units
within each segment are evaluated on revenues, operating income and income
before taxes and extraordinary items.
<TABLE>
<CAPTION>
Wholesale
Distribution Retail Consolidated
------------- ------------ -------------
<S> <C> <C> <C>
Quarter ended March 31, 2000:
External revenues $ 103,199,185 $ 8,536,930 $ 111,736,115
Intersegment sales 2,228,322 - 2,228,322
Income before taxes 1,519,520 374,049 1,893,569
Total assets 46,396,947 20,706,351 67,103,298
Quarter ended March 31, 1999:
External revenues $ 90,039 560 $ - $ 90,039,560
Intersegment sales - - -
Income before taxes 1,425,179 - 1,425,179
Total assets 44,747,899 - 44,747,899
Six months ended March 31, 2000:
External revenues $ 206,965,436 $ 16,814,439 $ 223,779,875
Intersegment sales 3,566,845 - 3,566,845
Income before taxes 2,804,787 713,222 3,518,009
Total assets 46,396,947 20,706,351 67,103,298
Six months ended March 31, 1999:
External revenues $ 172,348,320 $ - $ 172,348,320
Intersegment sales - - -
Income before taxes 3,820,353 - 3,820,353
Total assets 44,747,899 - 44,747,899
</TABLE>
Intersegment sales are at cost plus a nominal markup and are eliminated in the
consolidated statements of income. The retail segment was acquired in the
third and fourth quarters of fiscal 1999, therefore no segment information is
presented for the retail segment in first six months of fiscal 1999.
8. SUBSEQUENT EVENTS:
In April 2000, the Company sold its interest in a condominium in the Cayman
Islands and resolved an intellectual property matter associated with a
trademark. The gain associated with these events was $1,133,000, net-of-tax
and related expenses, or $0.43 per diluted share, and will be reflected in the
Company's third quarter results for the three and nine-month periods ending
June 30, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparison of the three-month and six-month periods ended March 31, 2000 and
March 31, 1999
Sales for the three months ended March 31, 2000 increased 24.1% to $111.7
million, compared to $90.0 million for the second quarter in prior fiscal
year. Sales increase by business segment is as follows:
Wholesale distribution $ 13.2 million
Retail health food stores 8.5 million
------
$ 21.7 million
======
Sales from the traditional distribution business increased by $12.6 million
during the second quarter over the second quarter in the prior year as
follows: Cigarette sales increased approximately $10.7 million over the
second quarter in the prior year (approximately $6.7 million was due to
significant price increases and approximately $4.0 million was due to
increased volume). Sales of tobacco, confectionery and other products
increased by $1.9 million primarily due to increased volume. Sales from the
natural foods distribution business, Food For Health, Co. Inc. ("FFH")
increased by $0.6 million. Sales of $8.5 million from the retail health food
stores, Chamberlin's Market & Cafe and Akin's Natural Foods Market, represent
new sales for the quarter since the retail segment was purchased in the third
and fourth quarters of fiscal 1999.
Sales for the six months ended March 31, 2000 increased 29.8% to $223.8
million, compared to $172.3 million for the same period in prior fiscal year.
Sales increase by business segment is as follows:
Wholesale distribution $ 34.6 million
Retail health food stores 16.8 million
------
$ 51.4 million
======
Sales from the traditional distribution business increased by $32.0 million
for the six months ended March 31, 2000 as compared to the same period in the
prior year as follows: Cigarette sales increased approximately $27.0 million
over the prior year (approximately $21.6 million was due to significant price
increases and the balance was due to increased volume). Sales of non-
cigarette products increased by $5.0 million primarily due to increased
volume. Sales from the health and natural foods distribution business
increased by $2.6 million. This increase was primarily due to the acquisition
of a Florida natural foods distributor in the middle of the first quarter of
fiscal 1999. Sales of $16.8 million from the retail health food stores,
Chamberlin's Market & Cafe and Akin's Natural Foods Market, represent new
sales for the six months ended March 31, 2000 since the retail segment was
purchased in the third and fourth quarters of fiscal 1999.
Gross profit increased 57.3% to $14.7 million for the three months ended March
31, 2000 from $9.4 million over the same period during the prior year. Gross
profit as a percent of sales increased to 13.2% for the quarter ended March
31, 2000 compared to 10.4% for the quarter ended March 31, 1999. Gross profit
by business segment for the second quarter is as follows (dollars in
millions):
Quarter ended
March 31,
---------------- Incr/
2000 1999 (Decr)
------ ------ ------
Wholesale distribution (recurring) $ 10.3 $ 7.8 $ 2.5
Wholesale distribution (nonrecurring) 0.7 1.6 (0.9)
Retail health food stores 3.7 n/a 3.7
------ ------ ------
$ 14.7 $ 9.4 $ 5.3
====== ====== ======
The increases in gross profit and gross profit percentage were primarily the
result of $3.7 million in gross profit generated by the retail health food
stores, which were acquired in the third and fourth quarters of fiscal 1999.
Profit margins generated by the retail food stores are typically 43-45%
compared to profit margins of 10-11% generated by the distribution segment.
Gross profit generated by the recurring traditional and natural foods
distribution businesses increased by $2.5 million. However, in the second
quarter of fiscal 2000, the traditional distribution business experienced a
decline of $0.9 million in gross profit, as compared to the same period of the
prior year, due to nonrecurring cigarette price increases. Although
manufacturers increased the price of cigarette in both fiscal 1999 and 2000,
management considers gross profits derived from such increases as nonrecurring
since they occur on an irregular basis.
Gross profit increased 43.4% to $28.7 million for the six months ended March
31, 2000 from $20.0 million over the same period during the prior year. Gross
profit as a percent of sales increased to 12.8% for the period compared to
11.6 % for the six months ended March 31, 1999. Gross profit by business
segment for the six months ended march 31, 2000 is as follows (dollars in
millions):
Six months ended
March 31,
---------------- Incr/
2000 1999 (Decr)
------ ------ ------
Wholesale distribution (recurring) $ 20.6 $ 16.3 $ 4.3
Wholesale distribution (nonrecurring) 0.7 3.7 (3.0)
Retail health food stores 7.4 n/a 7.4
------ ------ ------
$ 28.7 $ 20.0 $ 8.7
====== ====== ======
The increases in gross profit and gross profit percentage were primarily
attributable to $7.4 million in gross profit generated by the retail health
food stores, which were acquired in the third and fourth quarters of fiscal
1999. Profit margins generated by the retail food stores are typically 43-45%
compared to profit margins of 10-12% generated by the distribution segment.
Gross profit generated by the recurring traditional and natural foods
distribution businesses increased by $4.3 million due to additional sales
generated by the segment. However, for the first six months of fiscal 2000,
the traditional distribution business experienced a decline of $3.0 million in
gross profit, as compared to the same period of the prior year, due to
nonrecurring cigarette price increases. A significant cigarette price
increase was implemented by cigarette manufacturers in the first quarter of
fiscal 1999 as the result of a settlement that was reached between the major
tobacco manufacturers and the various states that had filed liability suits
against the industry. Price increases of the magnitude experienced in
November 1998 are rare and the profits generated by this event are not
expected to recur on a regular basis. Although manufacturers increased the
price of cigarettes again in the second quarter of fiscal 2000, management
considers gross profits derived from such increases as nonrecurring since they
occur on an irregular and unpredictable basis. The Company expects profit
margins to remain at current levels for the remainder of the fiscal year.
Sales of the Company's private label cigarettes declined steadily from 1993
through 1999 primarily due to the price differential between premium and major
generic brands. The rate of decline in private label cigarette sales has
slowed in fiscal 2000 and gross profit derived from such sales increased
slightly in both the three and six-months ended March 31, 2000 as compared to
the prior year. Management expects the gross profit derived from the sale of
its private label cigarettes to remain at current levels for the remainder of
fiscal 2000.
Total operating expense, which includes selling, general and administrative
expenses and depreciation and amortization, increased 58.1% or $4.4 million to
$12.1 million for the second quarter ended March 31, 2000 compared to the same
period in the prior fiscal year. The increase was primarily due to expenses
associated with the retail health food stores which accounted for $3.3 million
of the increase in operating expenses. The retail health food stores were
acquired in the third and fourth quarters of fiscal 1999; therefore, there
were no operating expenses associated with this business segment in the second
quarter of the prior year. As a percentage of sales, total operating expense
increased to 10.8% from 8.5% during the same period in the prior year. This
increase is primarily due to operating costs incurred by the retail health
food business during the period. Operating expenses incurred by this business
segment are approximately 35% of sales compared to 9% incurred by the
wholesale distribution business.
For the six-month period ended March 31, 2000, total operating expense
increased 53.0% or $8.2 million to $23.7 million compared to the same period
in fiscal 1999. The increase was primarily due to expenses associated with the
retail health food stores which accounted for $5.9 million of the increase in
operating expenses. The retail health food stores were acquired in the third
and fourth quarters of fiscal 1999; therefore, there were no operating
expenses associated with this business segment in the first six months of the
prior fiscal year. As a percentage of sales, total operating expense
increased to 10.6% from 9.0% during the same period in the prior year. This
increase is primarily due to operating costs incurred by the retail health
food business during the period. Operating expenses incurred by this business
segment are approximately 35% of sales compared to 9% incurred by the
wholesale distribution business.
As a result of the above, income from operations for the second quarter ended
March 31, 2000 increased by $912,000 or 53.9% to $2,604,000. Income from
operations for the six-month period ended March 31, 2000 increased $465,000 to
$5.0 million.
Interest expense for the three months ended March 31, 2000 increased 116.1% to
$819,000 compared to $379,000 during the same period in the prior year.
Interest expense for the six-month period ended March 31, 2000 increased 89.5%
to $1.6 million compared to $825,000 during the prior year. The increase was
primarily due to interest expense attributable to the debt incurred to
purchase the retail health food stores in fiscal 1999. Interest expense
associated with this acquisition debt was approximately $372,000 and $745,000
for the three and six-months periods ended March 31, 2000, respectively.
Other income for the three and six-month periods ended March 31, 2000 of
$108,000 and $116,000, respectively, was generated by gains associated with
the sale of fixed assets and marketable securities, royalty payments and
dividends received on investment securities. Other income for the three
months ended March 31, 1999 of $112,000 was generated from royalty payments,
rent income, gains on sales of fixed assets and proceeds from miscellaneous
industry promotions. Other income for the six months ended March 31, 1999 of
$145,000 was generated from similar activities.
As a result of the above factors, net income during the three months ended
March 31, 2000 was $1,206,000 compared to $861,000 for the three months ended
March 31, 1999. Net income during the six months ended March 31, 2000 was
$2,218,000 compared to $2,305,000 for the first six months of the prior year.
As described in Management's Discussion and Analysis in the Company's Annual
Report to Shareholders for the Fiscal Year Ended September 30, 1999, the
Company's distribution and retail businesses operate in very competitive
markets. Pressure on profit margins continue to affect both large and small
distributors and expansion by large natural food retail chains intensifies
competition in the Company's natural food retail markets. This business
climate subjects operating income to a number of factors which are beyond the
control of management, such as competing retail stores opening in close
proximity to the Company's retail stores and changes in manufacturers'
cigarette pricing which affects the market for generic and private label
cigarettes. While the Company sells a diversified product line, it remains
dependent upon cigarette sales which represented approximately 63% of its
revenue and 32% of its gross margin in the first six months of fiscal 2000.
The Company continuously evaluates steps it may take to improve net income in
future periods, including further acquisitions of other distributing companies
and retail stores in similar business lines and further sales of assets that
are no longer essential to its primary business activities such as investments
in equity securities.
Investments in equity securities at March 31, 2000 and September 30, 1999,
respectively, consisted primarily of 77,000 and 83,000 shares of Consolidated
Water Company Limited ("CWC"), a public company which is listed on NASDAQ,.
During the second quarter ended March 31, 2000, the Company sold 6,000 shares
of CWC and realized a gain of $27,800. The Company's basis in the remaining
securities is $140,000 and the fair market value of the securities was
$496,000 and $540,000 on March 31, 2000 and September 30, 1999, respectively.
The unrealized gain on CWC shares was approximately $356,000 and $389,000 on
March 31, 2000 and September 30, 1999, respectively. In April 2000, the
Company sold an additional 2,000 shares of CWC. The realized gain associated
with the sale was approximately $10,000. The fair market value of the CWC
shares held on April 30, 2000 was $469,000.
In April 2000, the Company sold its interest in a condominium in the Cayman
Islands and resolved an intellectual property matter associated with a
trademark. The gain associated with these events was $1,133,000, net-of-tax
and related expenses, and will be reflected in the Company's third quarter
results for the three and nine-month periods ending June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended March 31, 2000, the Company utilized cash flow in
operating activities to pay bonuses and satisfy other accrued expenses. Cash
was provided by operating activities through reductions in accounts receivable
and inventories as business typically slows during the winter months. Cash
was utilized in investing activities during the six-month period ended March
31, 2000 primarily to fund purchases of fixed assets. Cash was utilized in
financing activities to reduce borrowings on the Company's revolving lines of
credit and to satisfy current long-term debt obligations.
The Company had working capital of approximately $18.3 million as of March 31,
2000 compared to $18.7 million as of September 30, 1999. The Company's debt
to equity ratio was 3.38 to 1 at March 31, 2000 compared to 4.17 at September
30, 1999. The decrease was due to a reduction in the amount borrowed under
the Company's revolving credit facility.
The Company maintains two revolving credit facilities, the AMCON Distributing
Company revolving credit facility (the "Facility") and the FFH revolving
credit facility (the "FFH Facility"). The Facility was amended in September
1999 to increase the primary borrowing limit from $20 million to $25 million
and remove the additional $10 million facility which was collateralized by
specific inventory. The Facility allows the Company to borrow up to $25
million at any time, subject to eligible accounts receivable and inventory
requirements, and provides for an additional $1.5 million facility to be used
for transportation equipment purchases. The Facility bears interest at the
bank's base rate ("Prime") less 0.5% or LIBOR plus 1.75%, as selected by the
Company. As of March 31, 2000, the Company had borrowed approximately $14.6
million under the Facility. The Facility is collateralized by all equipment,
general intangibles, inventories and accounts receivable, and with a first
mortgage on the owned distribution center. The Facility expires on February
25, 2002.
The FFH Facility was amended in November 1999 to increase the amount provided
for maximum borrowings from $6 million to $8 million. Borrowings under the
FFH Facility are collateralized by the assets of FFH and are guaranteed by the
Company. Amounts under the FFH Facility bear interest at Prime less 0.5% or
LIBOR plus 2.0%, as selected by FFH. A commitment fee of .25% of the annual
average unutilized amount of the commitment is required. As of March 31,
2000, FFH had borrowed approximately $5.6 million under the FFH Facility. The
FFH Facility expires on February 25, 2002.
The FFH Facility contains covenants which, among other things, set forth
certain financial ratios and net worth requirements which adjust semiannually
or annually as specified in the FFH Facility. As of March 31, 2000, FFH was
not in compliance with several of its financial ratios due to the acquisition
of Health Food Associates, Inc. ("HFA")in September 1999.
The Company has an outstanding term loan from a bank which was used to finance
the purchase of the common stock of FFH (the "Acquisition Loan"). The
Acquisition Loan has a term of five years, bears interest at Prime less 0.5%
or LIBOR plus 1.75%, as selected by the Company and requires monthly payments
equal to accrued interest plus principal payments of $85,096, which began in
August 1998. As of March 31, 2000, the outstanding balance of the Acquisition
Loan was $2.7 million.
FFH has an outstanding term loan from a bank which was used to finance the
purchase of a Florida natural foods distributor in November 1998 (the "Term
Loan"). The Term Loan bears interest at Prime less 0.5%, required payments of
interest only for the first six months and monthly principal payments for the
term of the loan. The Term Loan is collateralized by the assets of FFH. As
of March 31, 2000, the outstanding balance of the Term Loan was $900,000.
In September, 1999, FFH utilized borrowings under an 8% Convertible
Subordinated Note (the "Convertible Note") and under a Collateralized
Subordinated Promissory Note (the "Collateralized Note"), in addition to
borrowing under the Facility, to purchase all of the common stock of HFA.
Funding for the acquisition was provided as follows: $4.0 million through
borrowings under the Facility; $2.0 million through borrowings under the
Convertible Note; and $8.0 million through borrowings under the Collateralized
Note.
Both the Convertible Note and the Collateralized Note have five-year terms and
bear interest at 8% per annum. Principal on the Convertible Note is due in a
single payment at maturity. Principal on the Collateralized Note is payable
in installments of $800,000 per year with the balance due at maturity. The
Collateralized Note is collateralized by a pledge of the stock of HFA. The
principal balance of the Convertible Note may be converted into stock of FFH
under circumstances set forth in the Convertible Note. As of March 31, 2000,
the outstanding balances of the Convertible Note and the Collateralized Note
were $2.0 million and $8.0 million, respectively.
The Company believes that funds generated from operations, supplemented as
necessary with funds available under the Facility and the FFH Facility, will
provide sufficient liquidity to cover its debt service and any reasonably
foreseeable future working capital and capital expenditure requirements.
CONCERNING FORWARD LOOKING STATEMENTS
This Quarterly Report, including the Management's Discussion and Analysis and
other sections, contains forward looking statements that are subject to risks
and uncertainties and which reflect management's current beliefs and estimates
of future economic circumstances, industry conditions, company performance and
financial results. Forward looking statements include information concerning
the possible or assumed future results of operations of the Company and those
statements preceded by, followed by or include the words "future," "position,"
"anticipate(s)," "expect," "believe(s)," "see," "plan," "further improve,"
"outlook," "should" or similar expressions. For these statements, we claim
the protection of the safe harbor for forward looking statements contained in
the Private Securities Litigation Reform Act of 1995. You should understand
that the following important factors, in addition to those discussed elsewhere
in this document, could affect the future results of the Company and could
cause those results to differ materially from those expressed in our forward
looking statements: changing market conditions with regard to cigarettes and
the demand for the Company's products, domestic regulatory risks, competitive
and other risks over which the Company has little or no control. Any changes
in such factors could result in significantly different results.
Consequently, future results may differ from management's expectations.
Moreover, past financial performance should not be considered a reliable
indicator of future performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's exposure to market risk relates
primarily to its investment in the common stock of Consolidated Water Company
(formerly Cayman Water Company), a public company traded on the Nasdaq
National Market system, and for changes in interest rates to its long-term
obligations. At March 31, 2000, the Company held 77,000 shares of common
stock of Consolidated Water Company valued at $496,000. The Company values
this investment at market and records price fluctuations in equity as
unrealized gain or loss on investments. At March 31, 2000, the Company had
$23.8 million of variable rate debt outstanding, with maturities through May
2004. The interest rates on this debt ranged from 7.69% to 8.50% at March 31,
2000. The Company has the ability to select the base on which its variable
interest rates are calculated and may select an interest rate based on its
lender's prime interest rate or based on LIBOR. This provides management with
some control of the Company's variable interest rate risk. The Company
estimates that its annual cash flow exposure relating to interest rate risk
based on its current borrowings is approximately $150,000 for each 1% change
in its lender's prime interest rate or LIBOR, as applicable.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) EXHIBITS
2.1 Stock Purchase Agreement dated November 3, 1997, between the
Company and FFH Holdings, Inc. (incorporated by reference to
Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on
November 25, 1997)
2.2 Stock Purchase Agreement dated February 24, 1999, between Food
For Health Company, Inc. ("FFH"), an Arizona corporation and a
wholly-owned subsidiary of AMCON, Chamberlin Natural Foods,
Inc.("Chamberlin"), a Florida corporation, Dale C. Bennett, Dale
C. Bennett as Trustee of the Alice M. Bennett Irrevocable Trust
Dated August 8, 1991, Dale C. Bennett as Trustee of the Dale C.
Bennett Revocable Trust dated August 8, 1991, Kirk D. Bennett and
Chad W. Bennett as Trustees of the Dale C. Bennett Irrevocable
Trust No. 1, Chad W. Bennett and Kirk D. Bennett (incorporated by
reference to Exhibit 2.2 of AMCON's Quarterly Report on Form 10-Q
filed on May 10, 1999)
2.3 Stock Purchase Agreement dated August 30, 1999, by and among Food
For Health Company, Inc., a wholly-owned subsidiary of AMCON
Distributing and Health Food Associates, Inc. (incorporated by
reference to Exhibit 2.1 of AMCON's Current Report of Form 8-K
filed on September 30, 1999)
3.1 Restated Certificate of Incorporation of the Company, as amended
March 19, 1998 (incorporated by reference to Exhibit 3.1 of
AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998)
3.3 Bylaws of the Company (incorporated by reference to Exhibit 3.2
of AMCON's Registration Statement on Form S-1 (Registration
No. 33-82848) filed on August 15, 1994)
4.1 Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of AMCON's Registration Statement on Form S-1
(Registration No. 33-82848) filed on August 15, 1994)
10.1 Grant of Exclusive Manufacturing Rights, dated October 1, 1993,
between the Company and Famous Value Brands, a division of Philip
Morris Incorporated, including Private Label Manufacturing
Agreement and Amended and Restated Trademark License Agreement
(incorporated by reference to Exhibit 10.1 of Amendment No. 1 to
AMCON's Registration Statement on Form S-1 (Registration
No. 33-82848) filed on November 8, 1994)
10.2 Amendment No. 1 to Grant of Exclusive Manufacturing Rights, dated
October 1, 1998, between the Company and Famous Value Brands, a
division of Philip Morris Incorporated, including Amendment No. 1
To Private Label Manufacturing Agreement and Amendment No. 1 to
Amended and Restated Trademark License Agreement (incorporated by
reference to Exhibit 10.2 of AMCON's Annual Report on Form 10-K
filed on December 24, 1998)
10.3 Loan Agreement, dated November 10, 1997, between the Company and
LaSalle National Bank (incorporated by reference to Exhibit 10.1
of AMCON's Current Report on Form 8-K filed on November 25, 1997)
10.4 Amended Loan Agreement, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.5 of AMCON's Quarterly Report on Form 10-Q filed on
May 11, 1998)
10.5 Note, dated November 10, 1997, between the Company and LaSalle
National Bank (incorporated by reference to Exhibit 10.2 of
AMCON's Current Report on Form 8-K filed on November 25, 1997)
10.6 First Allonge to Note, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.7 of AMCON's Quarterly Report on Form 10-Q filed on
May 11, 1998)
10.7 Loan and Security Agreement, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.8 of AMCON's Quarterly Report on Form 10-Q filed on
May 11, 1998)
10.8 Promissory Note, dated February 25, 1998, between the Company and
LaSalle National Bank (incorporated by reference to Exhibit 10.9
of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998)
10.9 Loan and Security Agreement, dated February 25, 1998, between
Food For Health Co., Inc. and LaSalle National Bank (incorporated
by reference to Exhibit 10.10 of AMCON's Quarterly Report on
Form 10-Q filed on May 11, 1998)
10.10 Promissory Note, dated February 25, 1998, between Food For
Health Co., Inc. and LaSalle National Bank (incorporated by
reference to Exhibit 10.11 of AMCON's Quarterly Report on
Form 10-Q filed on May 11, 1998)
10.11 First Amendment to Loan and Security Agreement, dated November
18, 1998, between Food For Health Co., Inc. and LaSalle National
Bank (incorporated by reference to Exhibit 10.11 of AMCON's
Quarterly Report on Form 10-Q/A filed on August 5, 1999)
10.12 First Amendment and Allonge to Promissory Note, dated November
18, 1998, between Food For Health Co., Inc. and LaSalle National
Bank (incorporated by reference to Exhibit 10.12 of AMCON's
Quarterly Report on Form 10-Q/A filed on August 5, 1999)
10.13 Unconditional Guarantee, dated February 25, 1998, between the
Company and LaSalle National Bank (incorporated by reference to
Exhibit 10.12 of AMCON's Quarterly Report on Form 10-Q
filed on May 11, 1998)
10.14 8% Convertible Subordinated Note, dated September 15, 1999 by
and between Food For Health Company Inc. and Eric Hinkefent,
Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by
reference to Exhibit 10.1 of AMCON's Current Report on Form 8-K
filed on September 30, 1999)
10.15 Secured Promissory Note, dated September 15, 1999, by and
between Food For Health Company, Inc. and James C. Hinkefent and
Marilyn M. Hinkefent, as trustees of the James C. Hinkefent
Trust dated July 11, 1994, as amended, Eric Hinkefent, Mary Ann
O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference
to Exhibit 10.2 of AMCON's Current Report on Form 8-K filed on
September 30, 1999)
10.16 Pledge Agreement, dated September 15, 1999, by and between Food
For Health Company, Inc. and James C. Hinkefent and Marilyn M.
Hinkefent, as trustees of the James C. Hinkefent Trust dated
July 11, 1994, as amended, Eric Hinkefent, Mary Ann O'Dell,
Sally Sobol, and Amy Laminsky (incorporated by reference to
Exhibit 10.3 of AMCON's Current Report on Form 8-K filed on
September 30, 1999)
10.17 AMCON Distributing Company 1994 Stock Option Plan (incorporated
by reference to Exhibit 10.7 of the Company's Registration
Statement on Form S-1 (Registration No. 33-82848) filed on
August 15, 1994)
10.18 AMCON Distributing Company Profit Sharing Plan (incorporated by
reference to Exhibit 10.8 of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-82848)
filed on November 8, 1994)
10.19 Employment Agreement, dated May 22, 1998, between the Company
and William F. Wright (incorporated by reference to Exhibit
10.14 of the Company's Quarterly Report on Form 10-Q filed on
August 6, 1998)
10.20 Employment Agreement, dated May 22, 1998, between the Company
and Kathleen M. Evans (incorporated by reference to Exhibit
10.15 of the Company's Quarterly Report on Form 10-Q filed on
August 6, 1998)
10.21 Employment Agreement, dated May 22, 1998, between the Food For
Health Co., Inc. and Jerry Fleming (incorporated by reference to
Exhibit 10.16 of the Company's Quarterly Report on Form 10-Q
filed on August 6, 1998)
11.1 Statement re: computation of per share earnings (incorporated by
reference to footnote 4 to the financial statements included in
Item 1 of Part I herein)
27.0 Financial Data Schedules
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AMCON DISTRIBUTING COMPANY
(registrant)
Date: May 8, 2000 Kathleen M. Evans
----------------- -------------------------
Kathleen M. Evans
President & Principal
Executive Officer
Date: May 8, 2000 Michael D. James
----------------- -------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer
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This schedule contains summary financial information extracted from the
Balance Sheet at March 31, 2000 and the Statement of Income for the Six Months
Ended March 31, 2000 (Unaudited) and is qualified in its entirety by reference
to such financial statements.
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